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Latest Amendment to Insolvency & Bankruptcy Code, 2016

Relief to Corporate Debtors against initiation of corporate insolvency resolution proceedings (“CIRP”) under Insolvency & Bankruptcy Code owing to Coronavirus Crises

 


The most awaited Insolvency & Bankruptcy Code (Amendment) Ordinance, 2020[1] was passed by Ministry of Law & Justice on 5th June 2020. It has inserted a new Section 10 A[2] and sub-section (3) to section 66[3] to the code. 

 

Under the amendment, a relief has been accorded to corporate debtors for any debts arising subsequent to March 25th, 2020. No corporate insolvency resolution proceedings (“CIRP”) can be initiated for any default of debt arising since this date till at least for a period of six months or any period not exceeding one year, as may be notified. The defaults arisen subsequent to the imposition of national lockdown till such date as may be notified are exempted from initiation of CIRP. Therefore, for defaults within such period, section. 7, 9 and 10 of the code stands suspended. 

 

Additionally, no application shall ever be filed for initiation of CIRP for any default arising during this period. 

 

This gives a relief to corporates defaulting purely out of declaration of country wide lockdown owing to Coronavirus crisis. Majority of the corporates are affected; for example, the Airlines companies would have turned insolvent had the relaxations were not eased out as on today and had the complete lockdown persisted for longer period. It is quite natural for corporates to commit defaults in such situation, when the business has been completely stopped or not running into its full swing. However, there are chances of growth and recovery post lockdown. Had the draconian provisions of IBC were applicable on defaults arising during coronavirus crisis, the corporates would have lost the chance of making good the default upon attaining subsequent normalcy. For basic contracts also the benefit of ‘force majure’ clause was widely discussed and acknowledged, considering that this is indeed a situation of ‘force majure’ and this amendment was the need of the hour to extend the benefit of ‘force majure’  to corporates for defaults arising during the aforesaid period, in order to give them a chance to recover post corona crisis. 

 

It is to be noted that earlier the threshold limit for initiation of CIRP under IBC was increased from INR 1 lakh to INR 1 Crore. This move, although was taken under current crisis, however, would stand tall subsequently. This would further boost the process of speedy resolutions of CIRPs. 

 

However, the amendment does not give relief against defaults arising prior to the imposition of national lockdown. Against such defaults, the CIRP can even be initiated today or any time. 


#insolvency #bankruptcy #corporate #debtors #IBC #Insolvencycode #coronavirus #covid-19 #forcemajure #lockdown #legaltrain

 

 


[2] Notwithstanding anything contained  in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on  or after 25th March, 2020 for a period of six months  or  such  further  period,  not  exceeding  one  year  from such date, as may be notified in this behalf:

Provided   that   no   application   shall   ever   be   filed   for initiation   of  corporate   insolvency   resolution   process   of  a corporate debtor for the said default occurring during the said period."

Explanation.-For  the  removal  of  doubts,  it  is  hereby clarified  that  the  provisions  of  this section  shall not  apply  to any  default  committed  under  the  said  sections   before  25th March, 2020.

[3] (3) Notwithstanding anything contained  in this section, no application  shall be filed  by a resolution professional under sub-section  (2),  in respect  of such  default  against which    initiation    of   corporate    insolvency    resolution process is suspended as per section  10 A



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Comments

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